Thursday, February 18, 2016

Sales Tax for Dance Classes, Fitness Centers Now Under Fire in Missouri

If you're a dance teacher, fitness center owner or gymnastics instructor in Missouri, you may have heard of this "entertainment tax" your facility is supposedly supposed to pay.

Or, maybe not.

Long story semi-short: In Missouri, "places of entertainment, amusement and recreation" — which traditionally meant places where audience were entertained by things like concerts or spectator sports —- are subject to a sales tax. But in 2008, a state Supreme Court ruling in a case called Michael Jaudes Fitness Edge, Inc. v. Director of Revenue got everything all bollixed up.

Jaudes, a Creve Coeur personal trainer, argued that he should receive a refund for the sales tax paid on fees collected from clients, saying that the fees covered personal training, not use of the gym for entertainment or amusement. Jaudes lost the case, with the judges decreeing that because he'd opened a facility that he used to train his clients, he should pay the entertainment tax like other facilities.

The problem with rulings like that is, no matter how specific they may be on paper, they set a precedent. The Department of Revenue now cites the case in asking people in similar situations to pay the entertainment sales tax. It's not just personal trainers, but dance and gymnastics teachers who find themselves on the hook. In many cases, they don't even realize they're on the hook until they get a notification demanding back taxes, says Heidi Geisbuhler, chief of staff for state Senator Bob Dixon (R-Springfield). "The dance studio in a lot of cases..." she says, "didn’t realize that they owed anything.”

That's why the legislature is taking action. Senator Dixon introduced a bill in January that would clarify what is defined as a place of entertainment, exempting dance studios, gymnastics studios and fitness centers. Additionally, Senator Will Kraus (R-Excelsior Springs) has been pushing a bill for the last two years requiring that the Department of Revenue at least alert these business owners if there's been a change in the interpretation of sales or use tax laws. Both bills are still in progress.

But because many groups didn't know they had to pay the tax, there's been some misguided backlash to the attempt to pare it back. A petition on change.org even originally targeted Dixon, apparently under the presumption he was initiating the tax, not trying to pare it back. (It's since been corrected.)

Geisbuhler says that Dixon's whole goal is to take things back to the way they had been before the court ruling. She believes the law was never meant to cover gyms, much less fitness instruction or dance classes. "With SB 706, Sen. Dixon is trying to clear up the confusion that surrounds the definition of places of entertainment and allow fitness centers, gymnastics studios, and dance studios to operate with an exemption from sales tax responsibilities like they used to," she says.

And hey, if the net result is that it gets more people into the gym, or the dance studio, who are we to argue with that?